Not equil Sterling'
CONFIDENTIAL
2.
Hong Kong continues to be built, and in my view its future, including its acceptability to HMG, the Chinese and the developed world in which its markets lie, depends on the momentum being maintained and where possible increased. This has been rendered all the more necessary by the massive influx of people from China which has raised the growth rate of population from 1.1% in 1976 (the natural increase) to 1.6% and 2.0% in 1977 and 1978 and to 6.4% in 1979. The need to maintain progress on the scale planned is subject only to the absolute imperative of economic stability.
4.
In view of the huge influx of Chinese and Vietnamese all seeking employment it has been fortunate that the economy has remained bouyant with a growth rate in GDP of 11.5% in real terms. Nevertheless the unlooked for increase in the work-force has reduced the benefits it could otherwise have expected at this stage of the up-swing, and thus reduced wage pressures on employers to invest in more productive and sophisticated plant.
5.
The tendency for the main elements of the economy to move out of balance, visible last year, has been reversed. The growth rate of exports was 16% (1978:13%) and of imports 15% (1978: 19%), that of private consumption 11% (1978:17%) and Government consumption 12% (1978: 21%). The tension in the economy slightly eased, and there has been a movement of labour out of domestic consumption into exports. There has been a consequent strengthening of the Hong Kong dollar.
6. As much as 60% of our trade in textiles and clothing, which still provide 42% of our exports, is now covered by restraint agreements. And in 1979 even our concluded Agreements were insufficient to protect the access we had managed to preserve to our markets. For most of the year we opposed vigorously the efforts of the US Administration to modify the terms of our agreement in respect of exports to the United States, as we were particularly concerned at the precedent that would thus be established. Concerned by protectionism generally, I appointed a Committee to advise whether the process of diversification of the economy, with particular reference to manufacturing industries, can be facilitated by modifying existing Government policies or introducing new ones
11 The Committee came forward with 47 recommendations.
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